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2022 (10) TMI 89 - SC - Indian LawsAppointment of arbitrators to resolve the dispute between the parties - preliminary inquiry or inquiry on whether the dispute is arbitrable or not, ws not held - Section 11(6) of the Arbitration and Conciliation Act, 1996 - HELD THAT - On a bare reading of Clause 36 of the Agreement, it clearly stipulates that in the event of any dispute as mentioned in Clauses 3, 6 and 9, other party shall have a right to get the Agreement specifically enforced through the appropriate court of law - with respect to any dispute as mentioned in Clauses 3, 6 9, such disputes are not arbitrable at all. It cannot be disputed that both the parties are governed by the Addendum Agreement dated 19.04.2011. In the recent decision in the case of Vidya Drolia 2020 (12) TMI 1227 - SUPREME COURT , which, as such, is post insertion of Section 11(6A) of the Arbitration Act, it is observed and held that the issue of nonarbitrability of a dispute is basic for arbitration as it relates to the very jurisdiction of the Arbitral Tribunal. An Arbitral Tribunal may lack jurisdiction for several reasons and nonarbitrability has multiple meanings. Considering Clauses 36 and 37 of the Agreement and when a specific plea was taken that the dispute falls within Clause 36 and not under Clause 37 and therefore, the dispute is not arbitrable, the High Court was at least required to hold a primary inquiry/review and prima facie come to conclusion on whether the dispute falls under Clause 36 or not and whether the dispute is arbitrable or not. Without holding such primary inquiry and despite having observed that a party does have a right to seek enforcement of agreement before the Court of law as per Clause 36, thereafter, has appointed the arbitrators by solely observing that the same does not bar settlement of disputes through Arbitration and Conciliation Act, 1996. The matter is remitted to the High Court to decide the application under Section 11(5) and (6) of the Arbitration Act afresh and to pass an appropriate order after holding a preliminary inquiry/review on whether the dispute is arbitrable or not and/or whether the dispute falls within Clause 36 of the Addendum Agreement or not - Appeal allowed.
Issues Involved:
1. Whether the High Court was justified in appointing arbitrators without holding a preliminary inquiry on the arbitrability of the dispute. 2. Interpretation of Clauses 36 and 37 of the Addendum Agreement. 3. Applicability of precedents on non-arbitrability and judicial review at the Section 11 stage of the Arbitration Act. 4. The necessity for preliminary inquiry by the High Court to determine arbitrability. Detailed Analysis: 1. Whether the High Court was justified in appointing arbitrators without holding a preliminary inquiry on the arbitrability of the dispute: The Supreme Court examined whether the High Court erred by appointing arbitrators without conducting a preliminary inquiry into the arbitrability of the dispute. The Court referenced the case of Vidya Drolia and Ors. Vs. Durga Trading Corporation, which established that courts must conduct a prima facie review to determine if a dispute is non-arbitrable before referring it to arbitration. The Court emphasized that the High Court should have performed this preliminary inquiry to ascertain whether the dispute fell under Clause 36, making it non-arbitrable. 2. Interpretation of Clauses 36 and 37 of the Addendum Agreement: Clause 36 specifies that disputes related to Clauses 3, 6, and 9 of the Addendum Agreement are to be resolved through appropriate courts of law, thus excluding them from arbitration. Clause 37, on the other hand, states that all other disputes arising from the agreement should be settled under the Arbitration and Conciliation Act, 1996. The Supreme Court highlighted that a proper reading of these clauses indicates that disputes falling under Clause 36 are explicitly non-arbitrable, and the High Court failed to consider this distinction adequately. 3. Applicability of precedents on non-arbitrability and judicial review at the Section 11 stage of the Arbitration Act: The Court referred to several precedents, including Uttarakhand Purv Sainik Kalyan Nigam Limited Vs. Northern Coal Field Limited and Indian Oil Corporation Limited Vs. NCC Limited, which support the principle that courts must determine the arbitrability of disputes at the Section 11 stage. The Court reiterated that an arbitration agreement must be in writing and that non-arbitrable disputes should not be forced into arbitration. The Court underscored that the High Court should have adhered to these precedents by conducting a preliminary inquiry into the arbitrability of the dispute. 4. The necessity for preliminary inquiry by the High Court to determine arbitrability: The Supreme Court emphasized the necessity for the High Court to hold a preliminary inquiry to determine whether the dispute falls within Clause 36 and is thus non-arbitrable. The Court noted that the High Court's failure to conduct such an inquiry rendered its decision to appoint arbitrators unsustainable. The Court concluded that the matter should be remitted to the High Court for a fresh decision after conducting the required preliminary inquiry. Conclusion: The Supreme Court allowed the appeal, quashing the High Court's order appointing arbitrators. The matter was remitted to the High Court to decide afresh on the application under Section 11(5) and (6) of the Arbitration Act after holding a preliminary inquiry to determine the arbitrability of the dispute and whether it falls within Clause 36 of the Addendum Agreement. The appeal was allowed with no costs.
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